Nature of Inter-Company Transactions

• Inter-company transactions refer to dealings between companies under common control or ownership.
  
• These include sales, purchases, loans, services, royalty, or management fees.
  
• Such transactions must be recorded at arm’s length in the financial statements.
  
• They are governed by transfer pricing norms under income tax regulations.
  
• Intra-group dealings impact revenue, expenses, and profit disclosures.
  

Inclusion in Book Profit under MAT

• MAT is based on the net profit as per the audited Profit and Loss Account.
  
• All inter-company transactions reflected in the accounts form part of book profit.
  
• MAT does not allow re-computation or substitution of profit figures using arm’s length adjustments.
  
• The net effect of these transactions is retained unless excluded by specific provisions.
  
• Only adjustments mentioned in Section 115JB are allowed for MAT computation.
  

Transfer Pricing and Compliance Impact

• Although MAT does not directly apply transfer pricing adjustments, reporting is mandatory.
  
• Any upward adjustment under transfer pricing is relevant only for regular tax, not MAT.
  
• Disallowances under transfer pricing do not modify book profit unless routed through accounts.
  
• Transfer pricing documentation ensures inter-company dealings are correctly valued.
  
• Disclosures and related party transaction notes in financial statements support MAT clarity.
  

Adjustment of Provisions and Liabilities

• Provisions for inter-company payables or receivables must be clearly classified.
  
• Unascertained liabilities to related parties are added back to book profit.
  
• Reversals or write-offs of inter-company balances may affect MAT if shown in P&L.
  
• Guarantees or commitments without clear obligation may trigger MAT adjustments.
  
• Only actual recorded transactions affect the MAT computation base.
  

Audit and Disclosure Requirements

• Inter-company transactions must be disclosed as related party transactions in financials.
  
• Auditors verify the completeness and correctness of such entries.
  
• Tax audit and Form 29B must reflect the treatment of related transactions under MAT.
  
• Documentation should support classification, pricing, and settlement of such dealings.
  
• Transparency and compliance with accounting standards ensure MAT accuracy.